Is The Tech Recovery Upon Us?

Let’s face it, things still aren’t great economically: unemployment is over 10% nationally in the US, credit is tight for small businesses as well as reduced access to investment capital, and consumer’s moods, while improving are still not positive.

However, while I don’t want to overstate the case, but I do believe we are on the way to recovery. This has strategic implications for software and tech companies.

A look at the positives:

Stock markets on the rise–The Dow Jones Industrial average is up nearly 65% in the last nine months. Tech stocks in particular have been strong: the benchmark NYSE Arca Computer Technology Index is up nearly 95% in the same period. This is from a very deep bottom, of course. But it adds considerable wealth increases optimism, which usually leads to positive momentum.

Search firms are adding their own staff— ExecuNet’s benchmark Search Firm Hiring Index has increased the last two quarters, after many quarters of decrease. This is a nice indicator of expected increased hiring by businesses overall.

Worldwide employment on the rise — Manpower, Inc.’s Global Employment Outlook Survey for Q1 2010 states that the employment outlook is mostly positive in the Americas and Asia-Pacific, while still somewhat mixed in EMEA. Labor market strength in Asia-Pacific, which is becoming increasingly important as a consumer market, is expected to return to levels similar to before the global downturn.

VCs still have lots of money to invest — After sitting on the sidelines in fear (like everyone else with money in their pockets) during this great recession, Venture Capitalists are starting to poke their heads out among the economic green shoots. They were sitting on huge amounts of capital that was raised in the pre-recession bubble environment, much of which is still not invested-but still accruing management fees. I have heard that there are now many limited partners filing lawsuits as a result of their funds lying fallow, which may stimulate an acceleration of VC investments in the coming year.

IT spending is forecast to rise — After several down years and a very bad 2009, Garner is projecting an increase in excess of a 3% in IT spending worldwide in 2010. This is very important, and a bullish signal for the tech sector heading into the New Year.

The IPO market window appears to be opening — Security software company Fortinet had a very successful offering in November. Meru Networks, a supplier of wireless LAN solutions, announced today it planned to raise $86M in an initial public offering. IPOs tend to drive increased capital access up and down the food chain, and that window has been closed for some time. If it opens significantly, that bodes well for growth in the software and tech sector.

No more bubbles – at least anytime soon

We’re not heading toward another bubble anytime soon. It appears we’re headed for moderate, but hopefully sustainable growth as a result of our two catastrophic burst bubble in the last decade. Government debt, commercial real estate and inflation potential are concerns in the long run, but appear to be manageable in the near term.

What should tech companies do?

First of all, don’t be stupid and increase spending if your situation doesn’t support it — credit is still very tight, and access to investment capital still remains below typical levels of the last decade. So make sure your plans are supported by cash flow, or in the case of early stage companies, at least access to reasonable levels of debt financing or investment capital.

If you are able to spend, it’s a great time to grow fast or take share from competitors — when the economy is just starting to take off and buying is accelerating, act before your cautious competitors have come out of their shells.

In general, companies tend to be too conservative in their investment and hiring plans — Take note that hiring tends to peak at the apex of an economic cycle, just before growth slows or turns negative. In fact, many experts consider strong hiring a leading indicator of an economy that’s lost its momentum. I’ve never been a fan of hiring just because you have the money and growth rate to support it. This is a leading cause of bloated cost structures and bureaucratic, slow moving organizations. But most companies are pretty lean in staff after several years of recession. So if you really do need people, it’s more productive to hire them now as we begin an up cycle, instead of waiting until the very end of it as so often happens.

That’s my forecast and advice for the software and technology business sector as we enter 2010. What’s your forecast? I’d love to hear it. Post a comment or shoot me an email to add your own spin to this discussion.

About Phil Morettini

Phil Morettini is the author of the Morettini on Management Tech Blog and President of PJM Consulting. Mr. Morettini has an extensive C-level software and hardware company executive background. PJM Consulting provides management consulting and interim management services to technology companies.